The Oct-26 MPC minutes underscored the difference in perceptions of the committee members on the monetary policy trajectory
Download ReportQuantEco Research | MPC Minutes | Oct-26 | United on the hike, divided on the trajectory
The Oct-26 MPC minutes underscored the difference in perceptions of the committee members on the monetary policy trajectory. While the Committee unanimously hiked the repo rate by 25 bps to 5.50%, the change in stance from neutral to ‘calibrated tightening’ was a divided vote with a 4-2 majority. Among the members, ED Indranil Bhattacharyya was perhaps the most hawkish as he set aside the 'wait and watch' approach, viewing rate hikes as the need of the hour. DG Poonam Gupta too made a direct case of further rate tightening, in a bid to keep inflation low and inflation expectations anchored. In contrast, Prof. Ram Singh and Saugata Bhattacharya advocated a calibrated and moderate tightening cycle, amidst downside risks to growth and domestic financial conditions having tightened already. All members expressed concerns on inflation upside materializing decisively, with inflation expectations too rising as per the latest round of RBI survey.
Overall, the broad tone appears to be clearly hawkish – amidst early signs of generalisation of price pressures along with the likelihood of continued passthrough of elevated input prices in the festive season. With CPI inflation trajectory projected to peak at 6.0% in Q3 FY27, our call for a 25bps hike in each of the Dec-26 and Feb-27 reviews stands reinforced, taking the repo rate to 6.00% by end-FY27. Thereafter, conviction for a further hike in Apr-27 (to 6.25%) remains low for now. However, persistent geopolitical risks and continued weather-related disruptions could tilt the balance toward a higher-than-anticipated rate-hike trajectory.